Why Godrej Properties Is A Hot Bet Among Investors
It added the highest saleable area of real estate among its peers in the year ended March. But there’s more to Godrej Properties.
Watch | Godrej Properties is a hot bet among investors
Shares of Godrej Properties Ltd. have returned the highest gains among peers so far this year as the developer was among the biggest beneficiaries of a wave of consolidation among cash-starved developers after the IL&FS crisis.
The realty arm of the Godrej Group had a joint-development portfolio of 75 million square feet as of March, according to its annual report released in September. That, according to Morgan Stanley, was the highest among peers. And it spiked nearly by half in three months ended June to 109 million sq ft.
Godrej Properties added nearly 35 million sq ft through such partnerships in just one quarter as small- and medium-sized developers struggled to raise funds. Non-bank lenders—their primary source of credit—have turned selective as shock defaults by IL&FS Group last year increased borrowing costs. That, coupled with a slowing economy, only hurt a nascent recovery from the setbacks of Prime Minister Narendra Modi’s cash ban and a stricter housing law that led to an inventory pile-up.
But large developers like Godrej Properties with a strong parentage find it easier to raise funds and remained insulated from credit crunch, allowing them to take on projects from struggling peers. The strategy, the company said in an analyst call after April-June earnings, bodes well.
The NBFC crisis has only expanded the opportunity to pool in stressed assets for Godrej Properties, Mohit Agrawal, real estate analyst at IIFL, told Bloomberg Quint. “With its JV/JD (joint venture/joint development) model having attained maturity, cash flows are expected to improve substantially over the next two-three years, with aggressive addition of new projects planned.”
According to Puneet Gulati, director (equity research) at HSBC, Godrej Properties is one of the few real estate companies that has a pan-India presence to source and sell large projects. “The company has the best management teams and processes to execute joint development agreements and raised money last year with access to a fund platform,” he said. “Its strong brand and good track record of executions allow it to command a preference over other developers in the minds of buyers and to sell properties at a premium.”
The company has yet to respond to BloombergQuint’s emailed queries. This story will be updated once they do.
Godrej Properties, according to its exchange filings, has lined up as many as 11 projects for the year ending March 2020, with a total area of 7.98 million square feet. It launched 16 in the previous fiscal.
The company has the highest booking value among peers at Rs 5,316 crore as of March, led by nine new launches across various projects, according to its annual report.
And Rs 2,100 crore that Godrej Properties raised through a qualified institutional placement in the quarter ended June helped it slash its net debt by half.
Analysts See No Upside
The company with 60 percent year-to-date gains has been the best performer among real estate companies so far this year, outperforming the benchmark Nifty Realty Index.
Nearly 56 percent of the analysts tracking the stock recommend a ‘Buy’, 19 percent suggest ‘Hold’ and the rest advise ‘Exit’, according to Bloomberg data. But given the surge this year, the average of 12-month price targets indicates a downside of 13 percent.
Edelweiss Securities and JM Financial said sharp price cuts in the realty market due to distress sale by developers to shore up liquidity is a risk since Godrej Properties enjoys a premium due to its brand. And they also cautioned about execution risk given the large number of relatively small projects.